Oil prices surge to two-week winning streak as Iran supply fears grip markets
If the FOMC is looking for a reason to cut key interest rates, it appeared on Tuesday when the Conference Board announced that consumer confidence plunged in January to 84.5, down from a revised 94.2 in December. The December consumer confidence number was revised up 5.1 points and helped to exaggerate the drop in January. However, the present situation index plunged by 9.9 points to 113.7 in January, so clearly something is bothering consumers other than just the cold weather.
Interestingly, the expectations component fell by 9.5 points to 65.1 in January. Dana M Peterson, the Chief Economist of the Conference Board, said, “Confidence collapsed in January, as consumer concerns about both the present situation and expectations for the future deepened.” Peterson added that “All five components of the Index deteriorated, driving the overall Index to its lowest level since May 2014 (82.2), surpassing its COVID-19 pandemic depths.” This was a shocking report, and I hope it gets the attention of the FOMC.
In my opinion, optimism is addictive, and I want investors to be bullish about America. There is an estimated $20 trillion of onshoring underway now in America. The U.S. is blessed to be food and energy independent. Exports are now setting records, and the trade deficit has shrunk to the lowest level in 16 years and could potentially disappear if the price of LNG, crude oil, and refined products firm up, since the U.S. is a major energy exporter.
Much of the surge in GDP growth is coming from booming exports like gold and pharmaceuticals. So, 6% GDP will be possible, and it is not expected to be inflationary due to record energy production, falling home/rental prices, and the fact that the U.S. is importing deflation from China.
AI is also making America more productive, and the 4.9% productivity gain in the third quarter was the strongest that I can remember. So, all these efficiencies promote falling prices as well as GDP growth.
Deflation is the only risk that can potentially derail America and the world, which is why China is expected to have a currency devaluation to stop its deflationary spiral. It will be the job of the new Fed Chairman to fight deflation and to spur consumer spending with lower interest rates. Economics 101 is about the “velocity of money,” which is how fast money changes hands. The faster consumers interact with each other via transactions, the more prosperity spreads.